Melville, N.Y. – American Home Mortgage Investment Corp. said today it is running out of cash and has hired advisors to consider its options, including selling off its assets.
Shares in American Home fell nearly 90 percent.
Keefe, Bruyette & Woods analyst Bose George said this announcement means American Home Mortgage will probably go bankrupt, or at least be restructured into something leaving very little value for shareholders.
“The chances are low,” he said of the company’s prospects for survival. “The situation is radically going to be altered.” The struggling mortgage lender said its financial backers have essentially pulled the plug. Some of the Wall Street banks that lend American Home Mortgage money for home loans — which include firms like UBS, Bear Stearns and J.P. Morgan Chase — have demanded their money back.
American Home Mortgage said it has over the last three weeks paid “very significant” margin calls, which occur as a lender demands compensation after a borrower’s collateral loses value. The company still faces “substantial” unpaid margin calls.
American Home said its financial backers will not float any more money, so the company failed to provide $300 million in mortgages promised to home buyers on Monday. The company said it expects not to be able to finance $450 million to $500 million in mortgages more day.
The reason American Home Mortgage’s lenders are balking is the mortgage loans that act as collateral for the company’s credit lines have sunk in value.
The market where investors buy mortgage loans has suffered “unprecedented disruption” this year, the company said, and it is having trouble selling its mortgages. Last year, the lender sold two-fifths of its loans to Countrywide Financial, Deutsche Bank and Wells Fargo.
The company hired Lazard and Milestone Advisors to assist in evaluating options.
Standard & Poor’s Ratings Services, a credit-rating agency, said it may downgrade some of the company’s debt. S&P said the conditions in the mortgage market will make it tougher for the company to collect payments on its mortgages.
Shares in American Home, which were halted all day Monday and most of today, fell $9.06 to $1.41 in afternoon trading, and went as low as $1.25 on the day. It last closed at $10.47 on Friday.
